Here's when a top economist says the US will see the most damage from Trump's tariffs

Apollo's Chief Economist Torsten Sløk forecasts the primary economic impact of Donald Trump's tariffs to materialize by year-end, projecting inflation to peak in November or December, with current CPI data already showing a lift-off (headline 2.7%, durables +0.7% YoY). This outlook suggests the Federal Reserve will likely delay interest rate cuts until the full inflationary extent is assessed. Sløk warns this could lead to a stagflation shock, potentially halving 2025 GDP growth, sustaining inflation around 3%, and increasing unemployment, presenting a significant monetary policy dilemma.

Analysis

Apollo's Chief Economist, Torsten Sløk, posits that the primary economic impact of recent tariffs will materialize by year-end, forecasting a peak in inflation during November or December. This outlook is supported by current data showing an inflationary "lift-off," with the headline Consumer Price Index (CPI) rising to 2.7% in June from 2.4% in May, and durable goods prices marking a 0.7% year-over-year increase—the second consecutive monthly rise after two years of declines. Sløk anticipates services inflation, which constitutes 60% of CPI, will soon accelerate, partly driven by wage growth pressures from deportation policies. Consequently, the Federal Reserve is expected to maintain a restrictive monetary policy stance, delaying interest rate cuts until the full extent of tariff-induced inflation is clear. This policy constraint introduces a significant risk of a stagflation shock, a scenario where inflation rises amid slowing economic growth. Sløk's modeling suggests this could cause 2025 GDP growth to halve from its recent peak, while inflation remains persistent around 3% and unemployment trends higher over the next two years.

Key Decisions for Investors

• Investors should re-evaluate portfolios for sensitivity to a 'higher-for-longer' interest rate environment, as the Federal Reserve is expected to delay rate cuts pending clarity on peak inflation from tariffs.
• Consider positioning for potential stagflation by reviewing exposure to cyclical sectors vulnerable to slowing GDP growth and assessing assets that may offer a hedge against persistent inflation.
• Monitor upcoming CPI reports, particularly services and wage growth components, as these will be critical forward-looking indicators for confirming the stagflationary pressures predicted for late 2024 and into 2025.